Contrarian Corpus
activist full deck initial thesis
2017-04-10 · 39 pages

BHP Billiton BHP

N 4 Narrative
V 3 Visual
C 3 Craft
Original source ↗

The three reasons

  1. 1

    DLC structure traps US$9.7bn of franking credits and a 12.7% Plc/Ltd discount

  2. 2

    US petroleum hidden inside BHP — standalone re-rating worth c.US$22bn vs broker average US$12.3bn

  3. 3

    Total Value Unlock Plan delivers +US$46bn / up to 48.6%-51.0% per-share upside

Primary demands

  • Unify the dual-listed company (DLC) structure into a single Australian-headquartered, Australian tax resident listed company
  • Demerge and separately list BHP's US petroleum business on the NYSE
  • Adopt a policy of consistent 14% discounted off-market share buybacks (initial buyback of at least US$6bn) on top of the 50% dividend payout
  • Stop value-destructive large-scale cash acquisitions like Petrohawk and Fayetteville

KPIs cited

Total shareholder return since BHP's bid for Rio Tinto (Nov 2008)
BHP +42.5% vs comparable portfolio +172.6%
5-year total shareholder return
BHP -31.7% vs comparable portfolio -12.4%
TSR since South32 demerger (May 2015)
BHP Ltd -17.1% vs South32 +36.4%
P/B vs comparable portfolio
BHP 1.5x vs peers 1.8x — c.19.4% / US$18bn upside
P/NAV vs comparable portfolio
BHP 0.88x vs peers 1.06x — c.20.4% / US$19bn upside
Plc discount to Ltd since DLC inception
Average 12.7% trading discount since 2001
EBITDA generated by Plc vs Plc shareholding
c.8.9% of EBITDA but Plc holds c.39.7% of shares
Franking credit balance
US$9.7bn in 2016, c.10% of market cap; could reach US$17bn by 2022
Wasted franking credits in March 2016 dividend
c.US$853m wasted via Dividend Share Mechanism on US$1,990m Plc dividend
US Onshore broker valuation
Broker average US$6.5bn — well below WoodMac (US$11.4bn) and US-listed peers
US petroleum implied valuation
c.US$22bn using Hess/Apache/Anadarko/EOG comparables vs analyst consensus US$12.3bn
Expected excess cash flow
US$31bn over next 5 years assuming 50% payout
Buyback program impact
c.US$33bn returned, c.29% of capital repurchased, c.33% EPS accretion, US$20bn NPV uplift
Standard deviation of returns (diversification claim)
BHP RoE stdev 18.5% vs comparable portfolio 15.7%; ROIC stdev 13.1% vs 8.3% — diversification doesn't reduce volatility
US petroleum write-downs
US$13.1bn cumulative write-downs on US Onshore

Pattern membership

Where this document fits across the library's 12 rhetorical / structural patterns.

Notable slides (7)

Notes

Elliott's opening salvo against BHP — accompanies a letter to directors. Tone is notably restrained for an Elliott campaign: framed as collaborative 'Value Unlock Plan' with management rather than personal attack on CEO Andrew MacKenzie (named only via embedded analyst quotes on p18). Strong template for the activist breakup playbook: SCQA structure (BHP is first-class but underperforming → 3 root causes → 3-step plan → +US$46bn). Heavy use of third-party analyst quote-walls (Barclays, Credit Suisse, UBS, JP Morgan, AFR on DLC; Citi, GS, DB, BofA, Bernstein on petroleum; Macquarie, UBS on capital returns) to outsource credibility. Visual design is functional banker-style, not editorial — blue/red palette, consistent two-column layouts, but six divider pages are nearly blank wasting real estate. Petrohawk and Fayetteville called out as 'value-destructive' acquisitions — closest the deck gets to villainization. Sum-of-parts waterfall on p4/p35 is the keystone visual.